Deck 12: Activity Analysis: Costing and Management

Question 1

The purchasing agent of the Clampett Company ordered materials of lower quality in an effort to economize on price and in response to the demands of the production manager due to a mistake in production scheduling. The materials were shipped by airfreight at a rate higher than ordinarily charged for shipment by truck, resulting in an unfavourable materials price variance. The lower quality material proved to be unsuitable on the production line and resulted in excessive waste. In this situation, who should be held responsible for the materials price and quantity variances.
$\begin{array}{lrr} \text { Materials Price Variance } &\text { Materials Quantiy Variance } &\\\end{array}$
A. $\begin{array}{ll}\text { Purchasing Agent } &&&& \text { Purchasing Agent } \\\end{array}$
B. $\begin{array}{ll}\text { Production Manager } &&& \text { Production Manager } \\\end{array}$
C. $\begin{array}{ll}\text { Production Manager } &&& \text { Purchasing Agent } \\\end{array}$
D. $\begin{array}{ll}\text { Purchasing Agent } &&&& \text { Production Manager }\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Answer 1

Option C

Question 2

The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: £65,560
Material price variance: £5,960 unfavourable
Total materials variance: £22,360 unfavourable
Standard cost per pound of material: £4
Standard cost per direct labour hour: £5
Actual direct labour hours: 6,500 hours
Labour efficiency variance: £3,500 favourable
Standard number of direct labour hours per unit of Roff: 2 hours
Total labour variance: £400 unfavourable

-
The actual material cost per pound was

A)£4.00.
B)£3.67.
C)£3.30.
D)£4.40.

Answer 2

£4.40.

Question 3

Managers should only concentrate on meeting a standard

Answer 3

False

Question 4

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed: $\begin{array}{lcc}&\text { standard Hours or Quantity} &\text {standard price or Rate }\\\text { Direct materials } & 3.0 \text { pounds } & £ 0.75 \text { per pound } \\\text { Direct labour } & 0.4 \text { hours } & £ 12.00 \text { per hour } \\\text { Variable manufacturing overhead } &0.4 \text { hours } & £ 9.00 \text { per hour }\end{array}$

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of direct labour hours. The following events occurred during March:
8,600 pounds of sand were purchased at a cost of £7,310.
7,200 pounds of sand were used for core tests.
840 actual direct labour hours were worked at a cost of £8,610.
Actual variable manufacturing overhead incurred was £3,200.

-The labour rate variance for March is

A)£4,578 unfavourable.
B)£1,470 unfavourable.
C)£4,578 favourable.
D)£1,470 favourable.

Question 5

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed: $\begin{array}{lcc}&\text { standard Hours or Quantity} &\text {standard price or Rate }\\\text { Direct materials } & 3.0 \text { pounds } & £ 0.75 \text { per pound } \\\text { Direct labour } & 0.4 \text { hours } & £ 12.00 \text { per hour } \\\text { Variable manufacturing overhead } &0.4 \text { hours } & £ 9.00 \text { per hour }\end{array}$

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of direct labour hours. The following events occurred during March:
8,600 pounds of sand were purchased at a cost of £7,310.
7,200 pounds of sand were used for core tests.
840 actual direct labour hours were worked at a cost of £8,610.
Actual variable manufacturing overhead incurred was £3,200.

-The variable overhead efficiency variance for March is

A)£320 unfavourable.
B)£320 favourable.
C)£360 unfavourable.
D)£360 favourable.

Question 6

In general, the purchasing agent is responsible for the material price variance

Question 7

The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: £65,560
Material price variance: £5,960 unfavourable
Total materials variance: £22,360 unfavourable
Standard cost per pound of material: £4
Standard cost per direct labour hour: £5
Actual direct labour hours: 6,500 hours
Labour efficiency variance: £3,500 favourable
Standard number of direct labour hours per unit of Roff: 2 hours
Total labour variance: £400 unfavourable

-
The labour rate variance was

A)£3,900 favourable.
B)£3,900 unfavourable.
C)£3,100 unfavourable.
D)£3,100 favourable.

Question 8

The Wright Company has a standard costing system. The following data are available for September: $\begin{array}{ll}\text { Actual quantity of direct materials purchased } & 25,000 \text { pounds } \\\text { Standard price of direct materials } & £ 2 \text { per pound } \\\text { Material price variance } & £ 2,500 \text { unfavourable }\end{array}$
The actual price per pound of direct materials purchased in September is

A)£1.85.
B)£2.00.
C)£2.10.
D)£2.15.

Question 9

The following labour standards have been established for a particular product: $\begin{array}{ll}\text { Standard labour hours per unit of output }&8.10 \text { hours }\\\text { Standard labour rate }&£ 14.40 \text { per hour }\end{array}$

The following data pertain to operations concerning the product for the last month:Actual hours worked $\quad 8,700$ hours
Actual total labour cost $£ 129,195$
Actual output $\quad$ $\quad$ $\quad$ 1,000 units

- What is the labour rate variance for the month?

A)£450 F
B)£3,915 F
C)£3,915 U
D)£450 U

Question 10

Managers should exercise considerable care in their use of a standard costing system

Question 11

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed: $\begin{array}{lcc}&\text { standard Hours or Quantity} &\text {standard price or Rate }\\\text { Direct materials } & 3.0 \text { pounds } & £ 0.75 \text { per pound } \\\text { Direct labour } & 0.4 \text { hours } & £ 12.00 \text { per hour } \\\text { Variable manufacturing overhead } &0.4 \text { hours } & £ 9.00 \text { per hour }\end{array}$

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of direct labour hours. The following events occurred during March:
8,600 pounds of sand were purchased at a cost of £7,310.
7,200 pounds of sand were used for core tests.
840 actual direct labour hours were worked at a cost of £8,610.
Actual variable manufacturing overhead incurred was £3,200.

-
The materials quantity variance for March is

A)£900 favourable.
B)£1,950 favourable.
C)£1,950 unfavourable.
D)£ 900 unfavourable.

Question 12

Variable manufacturing overhead is applied to products on the basis of standard direct labour-hours. If the direct labour efficiency variance is unfavourable, the variable overhead efficiency variable will be

A)favourable.
B)unfavourable.
C)either favourable or unfavourable.
D)zero.

Question 13

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed: $\begin{array}{lcc}&\text { standard Hours or Quantity} &\text {standard price or Rate }\\\text { Direct materials } & 3.0 \text { pounds } & £ 0.75 \text { per pound } \\\text { Direct labour } & 0.4 \text { hours } & £ 12.00 \text { per hour } \\\text { Variable manufacturing overhead } &0.4 \text { hours } & £ 9.00 \text { per hour }\end{array}$

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of direct labour hours. The following events occurred during March:
8,600 pounds of sand were purchased at a cost of £7,310.
7,200 pounds of sand were used for core tests.
840 actual direct labour hours were worked at a cost of £8,610.
Actual variable manufacturing overhead incurred was £3,200.

-
The materials price variance for March is

A)£860 unfavourable.
B)£860 favourable.
C)£281 unfavourable.
D)£281 favourable.

Question 14

The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: £65,560
Material price variance: £5,960 unfavourable
Total materials variance: £22,360 unfavourable
Standard cost per pound of material: £4
Standard cost per direct labour hour: £5
Actual direct labour hours: 6,500 hours
Labour efficiency variance: £3,500 favourable
Standard number of direct labour hours per unit of Roff: 2 hours
Total labour variance: £400 unfavourable

-The total number of units of Roff produced during August was

A)10,800.
B)14,400.
C)3,600.
D)6,500.

Question 15

Standard costs greatly increase the complexity of the bookkeeping process

Question 16

Cox Engineering performs cement core tests in its laboratory. The following standards have been set for each core test performed: $\begin{array}{lcc}&\text { standard Hours or Quantity} &\text {standard price or Rate }\\\text { Direct materials } & 3.0 \text { pounds } & £ 0.75 \text { per pound } \\\text { Direct labour } & 0.4 \text { hours } & £ 12.00 \text { per hour } \\\text { Variable manufacturing overhead } &0.4 \text { hours } & £ 9.00 \text { per hour }\end{array}$

During March, the laboratory performed 2,000 core tests. On March 1 no direct materials (sand) were on hand. Variable manufacturing overhead is assigned to core tests on the basis of direct labour hours. The following events occurred during March:
8,600 pounds of sand were purchased at a cost of £7,310.
7,200 pounds of sand were used for core tests.
840 actual direct labour hours were worked at a cost of £8,610.
Actual variable manufacturing overhead incurred was £3,200.

-
The labour efficiency variance for March is

A)£480 favourable.
B)£480 unfavourable.
C)£192 favourable.
D)£192 unfavourable.

Question 17

The Cox Company uses standard costing. The following data is available for April: $\begin{array}{ll}\text { Actual quantity of direct materials used } & 12,200 \text { gallons } \\\text { Standard price of direct materials } & £ 4 \text { per gallon } \\\text { Material quantity variance } & £ 2,000 \text { unfavourable }\end{array}$
The standard quantity of material allowed for April production is

A)14,200 gallons.
B)12,700 gallons.
C)11,700 gallons.
D)10,200 gallons.

Question 18

The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: £65,560
Material price variance: £5,960 unfavourable
Total materials variance: £22,360 unfavourable
Standard cost per pound of material: £4
Standard cost per direct labour hour: £5
Actual direct labour hours: 6,500 hours
Labour efficiency variance: £3,500 favourable
Standard number of direct labour hours per unit of Roff: 2 hours
Total labour variance: £400 unfavourable

-
The actual direct labour rate per hour was

A)£ 5.60.
B)£ 5.00.
C)£10.00.
D)£ 4.40.

Question 19

The following labour standards have been established for a particular product: $\begin{array}{ll}\text { Standard labour hours per unit of output }&8.10 \text { hours }\\\text { Standard labour rate }&£ 14.40 \text { per hour }\end{array}$

The following data pertain to operations concerning the product for the last month:Actual hours worked $\quad 8,700$ hours
Actual total labour cost $£ 129,195$
Actual output $\quad$ $\quad$ $\quad$ 1,000 units

-
What is the labour efficiency variance for the month

A)£8,910 U
B)£12,555 F
C)£12,555 U
D)£8,640 U

Question 20

If the labour efficiency variance is unfavourable, then

A)actual hours exceeded standard hours allowed for the actual output.
B)standard hours allowed for the actual output exceeded actual hours.
C)the standard rate exceeded the actual rate.
D)the actual rate exceeded the standard rate.

Question 21

The general model for calculating a price variance is

A)actual quantity of inputs x (actual price - standard price).
B)standard price x (actual quantity of inputs - standard quantity allowed for output).
C)(actual quantity of inputs at actual price) - (standard quantity allowed for output at standard price).
D)actual price x (actual quantity of inputs - standard quantity allowed for output).

Question 22

Ideal standards should be used for forecasting and planning

Question 23

An unfavourable material quantity variance indicates that the actual usage of material exceeds the standard material allowed for output

Question 24

The following standards for variable manufacturing overhead have been established for a company that makes only one product:Standard hours per unit of output $\quad$$\quad$ 7.0 hours
Standard variable overhead rate $\quad$$\quad$ £ 11.35 per hour
The following data pertain to operations for the last month: $\begin{array}{ll}\text { Actual hours } & 7,500 \text { hours } \\\text { Actual total variable overhead cost } & £ 87,000 \\\text { Actual output } & 1,000 \text { units }\end{array}$

- What is the variable overhead spending variance for the month

A)£7,550 F
B)£7,550 U
C)£1,875 F
D)£1,875 U

Question 25

The following standards for variable manufacturing overhead have been established for a company that makes only one product:Standard hours per unit of output $\quad$$\quad$ 7.0 hours
Standard variable overhead rate $\quad$$\quad$ £ 11.35 per hour
The following data pertain to operations for the last month: $\begin{array}{ll}\text { Actual hours } & 7,500 \text { hours } \\\text { Actual total variable overhead cost } & £ 87,000 \\\text { Actual output } & 1,000 \text { units }\end{array}$

- What is the materials quantity variance for the month?

A)£9,940 U
B)£15,351 U
C)£14,484 U
D)£10,535 U

Question 26

The following labour standards have been established for a particular product: $\begin{array}{ll}\text { Standard labour hours per unit of output }&9.0 \text { hours }\\\text { Standard labour rate }&£ 15.10 \text { per hour }\end{array}$

The following data pertain to operations concerning the product for the last month: $\begin{array}{ll}\text { Actual hours worked } & 8,100 \text { hours } \\\text { Actual total labour cost } & £ 119,880 \\\text { Actual output } & 800 \text { units }\end{array}$
What is the labour rate variance for the month

A)£11,160 F
B)£13,320 U
C)£11,160 U
D)£2,430 F

Question 27

The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:
Actual cost of direct material purchased and used: £65,560
Material price variance: £5,960 unfavourable
Total materials variance: £22,360 unfavourable
Standard cost per pound of material: £4
Standard cost per direct labour hour: £5
Actual direct labour hours: 6,500 hours
Labour efficiency variance: £3,500 favourable
Standard number of direct labour hours per unit of Roff: 2 hours
Total labour variance: £400 unfavourable

-
The standard material allowed to produce one unit of Roff was

A)1 lb.
B)4 lbs.
C)3 lbs.
D)2 lbs.

Question 28

Standards are set for units; budgets are expressed in total pounds

Question 29

The standard quantity per unit for direct materials should not include an allowance for waste, spoilage and other inefficiencies

Question 30

The standard cost card for one unit of a certain finished product shows the following: $$\begin{array} { l l l } & \text { Standard Quantity or Hours } & \text { Standard Price or Rate } \\\text { Direct materials } & 10 \text { pounds } & £ ? \text { per pound } \\\text { Direct labour } & 2.5 \text { hours } & £ 16 \text { per hour } \\\text { Variable manufacturing overhead } & 1.5 \text { hours } & £ 10 \text { per hour }\end{array}$$
If the total standard variable cost for one unit of finished product is £85, then the standard price per pound for direct materials is

A)£1.74.
B)£4.60.
C)£5.90.
D)£3.00.

Question 31

The following standards for variable manufacturing overhead have been established for a company that makes only one product:Standard hours per unit of output $\quad$$\quad$ 7.0 hours
Standard variable overhead rate $\quad$$\quad$ £ 11.35 per hour
The following data pertain to operations for the last month: $\begin{array}{ll}\text { Actual hours } & 7,500 \text { hours } \\\text { Actual total variable overhead cost } & £ 87,000 \\\text { Actual output } & 1,000 \text { units }\end{array}$

-
What is the variable overhead efficiency variance for the month

A)£5,800 F
B)£5,800 U
C)£1,750 F
D)£5,675 U

Question 32

Home Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per Type-R table is £7.80 based on six square feet of vinyl at a cost of £1.30 per square foot. A production run of 1,000 tables in January resulted in usage of 6,400 square feet of vinyl at a cost of £1.20 per square foot, a total cost of £7,680. The quantity variance resulting from the above production run was

A)£120 favourable.
B)£480 unfavourable.
C)£520 unfavourable.
D)£640 favourable.

Question 33

The Swenson Company has a standard costing system. The following data are available for June: $\begin{array}{l}\text { Actual quantity of direct materials purchased } &35,000 \text { pounds }\\\text { Standard price of direct materials } & £ 4 \text { per pound } \\\text { Material price variance } & £ 7,000 \text { unfavourable } \\\text { Material quantity variance } & £ 4,200 \text { tavourable }\end{array}$
The actual price per pound of direct materials purchased in June is

A)£3.92.
B)£4.32.
C)£4.08.
D)£4.20.

Question 34

Generally speaking, it is the responsibility of the production department to see that material usage is kept in line with standards

Question 35

Managers generally find the interpretation of variances to be straightforward

Question 36

Palo Corp. manufactures one product with a standard direct labour cost of 2 hours at £6.00 per hour. During March, 500 units were produced using 1,050 hours at £6.10 per hour. The unfavourable direct labour efficiency variance is

A)£100.
B)£105.
C)£300.
D)£305.

Question 37

The general model for calculating a quantity variance is

A)actual quantity of inputs used x (actual price - standard price).
B)standard price x (actual quantity of inputs used - standard quantity allowed for output).
C)(actual quantity of inputs used at actual price) - (standard quantity allowed for output at standard price).
D)actual price x (actual quantity of inputs used - standard quantity allowed for output).

Question 38

The materials quantity variance should be computed

A)when materials are purchased.
B)based upon the amount of materials used in production.
C)based upon the difference between the actual and standard prices per unit times the actual quantity used.
D)only when there is a difference between standard and actual cost per unit for the materials.

Question 39

The materials price variance should be computed when materials are purchased

Question 40

Perkins Company, which has a standard cost system, had 500 pounds of raw material X in its inventory at June 1, purchased in May for £1.20 per pound and carried at a standard cost of £1.00 per pound. The following information pertains to raw material X for the month of June: $\begin{array}{ll}\text { Actual pounds purchased } & 1,400 \\\text { Actual pounds used } & 1,500 \\\text { Standard pounds allowed for actual production } & 1,300 \\\text { Standard cost per pound } & £ 1.00 \\\text { Actual cost per pound } & £ 1.10\end{array}$
The unfavourable materials purchase price variance for raw material X for June was

A)£ 0.
B)£130.
C)£140.
D)£150.

Question 41

A favourable material price variance coupled with an unfavourable material usage variance would most likely result from

A)labour efficiency problems.
B)machine efficiency problems.
C)the purchase and use of higher than standard quality material.
D)the purchase and use of lower than standard quality material.

Question 42

In some cases a favourable variance can be as bad or worse as an unfavourable variance

Question 43

Is the main purpose of standard costing to apportion blame for adverse variances? Discuss.
You may use the interaction between each director 'Management Accounting in action' on page 478 in Chapter 12 to illustrate this answer if you wish.

Question 44

The entry to record unfavorable labour efficiency variance and a favourable labour rate variance is

A)Cr WIP Cr Labour Efficiency Var Dr Labour Rate Var Dr Wages Payable
B)Cr WIP Dr Labour Efficiency Var Dr Labour Rate Var Cr Wages Payable
C)Dr WIP Dr Labour Efficiency Var Cr Labour Rate Var Cr Wages Payable
D)Dr WIP Cr Labour Efficiency Var Cr Labour Rate Var Dr Wages Payable

Question 45

Standard Costing is not worth bothering with as there are too many problems and it is so costly in management time etc. Discuss.

Question 46

Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unit of Teragram include six pounds of material at £0.30 per pound. Actual production in November was 3,100 units of Teragram. The accountant computed a favourable materials purchase price variance of £380 and an unfavourable materials quantity variance of £120. Based on these variances, one could conclude that

A)more materials were purchased than were used.
B)more materials were used than were purchased.
C)the actual cost of materials was less than the standard cost.
D)the actual usage of materials was less than the standard alloweD.

Question 47

The standard cost per unit is computed by multiplying the standard quantity or hours by the standard price or rate

Question 48

An unfavourable material quantity variance indicates that

A)actual usage of material exceeds the standard material allowed for output.
B)standard material allowed for output exceeds the actual usage of material.
C)actual material price exceeds standard price.
D)standard material price exceeds actual price.

Question 49

Throop Company's standards call for one kilogram of materials for each unit of output at a cost of £2 per kilogram for the raw materials. Actual output was 50,000 units of product requiring 45,000 kilograms of raw materials at a cost of £2.10 per kilogram. There were no beginning or ending inventories of raw materials. The direct material price variance and quantity variance were:
$\begin{array}{ll}&&&&\text { Price } &&&&&& \text { Quantity } \\\end{array}$
A. $\begin{array}{ll}\text { £ 4,500 unfavourable } & £ 10,000 \text { favourable } \\\end{array}$
B. $\begin{array}{ll}\text { £ 5,000 favourable } && £ 10,500 \text { unfavourable } \\\end{array}$
C. $\begin{array}{ll}\text { £ 5,000 unfavourable } & £ 10,500 \text {favourable } \\\end{array}$
D. $\begin{array}{ll}\text { £10,000 favourable } && £ 4,500 \text { unfavourable }\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 50

The entry to record an unfavorable material quantity variance is

A)Dr WIP Dr Mat Qty Var Cr Raw Mats
B)Cr WIP Cr Mat Qty Var Dr Raw Mats
C)Dr WIP Cr Mat Qty Var Cr Raw Mats
D)Cr WIP Dr Mat Qty Var Dr Raw Mats

Question 51

If managers are insensitive and use variances as a club morale will suffer

Question 52

If variable manufacturing overhead is applied on the basis of direct labour-hours and the variable overhead spending variance is favourable, then the

A)actual variable manufacturing overhead rate exceeded the standard rate.
B)standard variable manufacturing overhead rate exceeded the actual rate.
C)actual direct labour-hours exceeded the standard direct labour-hours allowed for the actual output.
D)standard direct labour-hours allowed for the actual output exceeded the actual hours.

Question 53

An unfavourable direct labour efficiency variance could be caused by

A)an unfavourable material quantity variance.
B)an unfavourable variable overhead spending variance.
C)a favourable material quantity variance.
D)a favourable variable overhead spending variance.

Question 54

The following materials standards have been established for a particular product:Standard quantity per unit of output 5.3 meters
Standard price $\quad$$\quad$$\quad$$\quad$ £ 17.20 per meter
The following data pertain to operations concerning the product for the last month:Actual materials purchased $\quad 8,100$ meters
Actual cost of materials purchased $£ 141,345$
Actual materials used in production 7,600 meters
Actual output $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 1,400 units
What is the materials price variance for the month

A)£3,141 U
B)£2,025 U
C)£8,600 U
D)£8,725 U

Question 55

Analyse the problems illustrated by the scenario painted in "Management Accounting in action" on page 478 in Chapter 12. Are they mainly people or system problems?

Question 56

Which department should usually be held responsible for an unfavourable materials price variance

A)Production.
B)Materials Handling.
C)Engineering.
D)Purchasing.

Question 57

The materials price variance should be computed

A)when materials are purchased.
B)when materials are used in production.
C)based upon the amount of materials used in production when only a portion of materials purchased is actually used.
D)based upon the difference between the actual quantity of inputs and the standard quantity allowed for output times the standard price.

Question 58

The material price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production

Question 59

A labour efficiency variance resulting from the use of poor quality materials should be charged to

A)the production manager.
B)the purchasing agent.
C)manufacturing overhead.
D)the industrial engineering department.

Question 60

Management by exception can blind management from what else is going on in the business. Discuss

Question 61

List the disadvantages of standard costing.

Question 62

List who is responsible for each of the variances listed below. Where there might be more than one person state each. Comment on any interaction between the variances.
1 Unfavourable material quantity
2 Unfavourable material price
3 Unfavourable labour rate
4 Unfavourable labour efficiency

Question 63

List the 'pros' and 'cons' of using ideal standards. Do you think they are a good idea?